You might have heard about TDS on salary, interest payments by banks, professional fees, etc.
Similarly, there’s a concept of TDS on rent. What it means is, tax is deducted by the tenant from the rent income.
When making the payment to an NRI, the tenant is required to deduct TDS at 31.2% (i.e, 30% TDS + 4% Cess) and then make the payment.
Let’s understand the various TDS sections applicable to rent.
What is rent under both these sections?
Rent means any payment made for lease, sub-lease, tenancy, or any other agreement for the use of any:
- Land
- Building
- Plant
- Machinery
- Furniture
- Fittings
- Equipment
Usually, the person who receives such rent income is required to pay tax. But, with the introduction of the TDS concept, the government ensures that the tax is deducted from the payment. So, the receiver gets the net rent income (ie, after the TDS deduction)
Section 194I & 194IB of the Income Tax Act deals with the TDS to be deducted on the payment of rent.
What is section 194I?
According to this section, only those businesses and professionals to whom audit is applicable are required to deduct tax on rent paid/payable to a resident, if the amount of rent in a financial year exceeds ₹2,40,000.
Businesses and Professionals who are not required to get a Tax Audit done are not required to deduct any TDS on rent irrespective of the amount of payment made during the year.
| Section | Nature of Payment | TDS Rate |
|---|---|---|
| 194I(a) | Rent of plant & machine | 2% |
| 194I(b) | Rent of other than plant & machine | 10% |
What is section 194IB?
This section was introduced in 2017 to cover individuals & HUF who are not covered under audit (in other words, not covered under section 194I).
This section requires individuals or HUF not liable to audit to deduct tax at 5% if PAN is provided (TDS at 20% if PAN is not provided) on the rent paid/payable to a resident if the amount exceeds ₹50,000 per month.
Key considerations:
- The payer of the rent u/s 194IB should download and furnish a TDS certificate in Form 16C and issue it to the receiver of the rent income within 15 days of filing Form 26QC on the TIN NSDL portal.
- The payer of the rent u/s 194I should download and furnish a TDS certificate in Form 16A and issue it to the receiver of the rent income within 15 days of filing Form 26Q on the TIN NSDL portal.
- If a rent payment is made to an NRI, then TDS of 31.2% should be deducted by the person making the payment, irrespective of the rent amount payable.
- Upon the payment to NRI, the person making the rent payment should file form 15CA and submit it to the ITD. (If the amount exceeds ₹5,00,000, then the tenant is also required to file Form 15CB.)
- If the TDS is not deducted, penalty interest at 1% is applicable per month till the TDS is deducted and deposited.
- If the TDS is deducted but not deposited, penalty interest at 1.5% is applicable per month till the TDS is deposited.